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Unpredictable inflation and borrowing money

  1. Apr 18, 2009 #1
    Is it true that we should borrow money during high inflation periods and lend during deflation periods?
     
  2. jcsd
  3. Apr 18, 2009 #2

    mgb_phys

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    Yes (assuming the interest rates don't keep up.)

    Inflation effectively destroys debt - that's why the rich and banks object to it so much.
    My parents bought a house in the early 70s for what would now be a months salary.
     
  4. Apr 18, 2009 #3
    well, that is an oversimplification, but essentially true. inflation does erode debt, but deflation increases the burden of debt, because you would owe more in terms of purchasing power.
     
  5. Apr 18, 2009 #4
    How true? I know that US government has inflation-indexed bonds but are loans interest also work like that?

    Does that also mean if banks sense that inflation is coming, they would stop lending money? Or, they will just raise the interest rates?
     
  6. Apr 19, 2009 #5

    CRGreathouse

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    They would raise the rates. This would indirectly cause them to lend less.
     
  7. Apr 23, 2009 #6


    It all depends on your personal circumstances really.
    If the real interest rate is low (bank rates - inflation) or negative you may as well spend.
    If it is high saving looks a good option.
    A lot depends on what you want to buy and what future prices are likely to be.
     
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